Employment data for May highlights that the labour market is no longer improving. The headline numbers still indicate better conditions than a year ago, but recent shifts across a number of measures suggests that the market no longer has growth momentum.
The monthly and six (6) monthly snapshot still indicates a better labour market than a year ago, especially in terms of FT employment growth over PT employment growth and change in total unemployed persons:-
- There has been higher growth in FT over PT employment over the last six (6) months. But the trend in FT employment growth has started to slow again. Growth in PT employed persons has been slowing for longer, but this was likely as a result of stronger growth in FT employed persons (employers switching from PT back to FT hours/labour).
- Total unemployed persons has declined month on month (less unemployed persons than the month prior), driven mostly by a decline in total unemployed females. Whilst the number of unemployed males also declined, that rate of decline has started to slow down – a reversal of a positive trend.
- Growth in total employed person over the last six months (+96.3k) is now almost as high as the annual growth of +105.1k persons, meaning that most of the growth in total employed persons has happened in the last six months. That annual growth in total employed persons is still sitting well below historical averages – the average growth in total employed persons for May over the last ten years is +210k persons.
Another way to look at the National Summary is by looking at the trend over the last 13 months of the monthly change in 1) total employed persons and 2) total unemployed persons. The blue and the red bars in the chart below equal the monthly change in the labour force size, or, in this case, +10.9k persons for May 2014. The green bars represent the number of people that have left the labour force – the month on month change in the labour force participation rate (-0.01) multiplied by the current working age population estimate. For example, in May 2014, underlying population growth added +13.2k persons to the labour force and the at the same time, the labour force participation rate declined by -2.3k persons – which equals the +10.9k growth in the labour force for the month.
The last 12 individual months sum to the annual change so we can better see the composition of the trend over the course of the last year.
The improvement in employment growth (blue bars, above) versus the same time last year is obvious, but it’s also clear that employment growth has been slowing over the last several months. This is due to a combination of slower growth in both FT and PT employed persons since March 2013:-
Growth in FT employed persons is still positive with growth of +13k persons in May 2014, but the stronger momentum between October 2013 and February 2014 has now slowed.
Despite the recent rebound, employment growth is still not high enough to ‘soak up’ the growth in the labour force as a result of population growth. The addition to the labour force as a result of population growth is estimated by taking the monthly change in the working age population and multiplying that by the participation rate for that month.
The graph below charts the growth in total employed persons less the growth in the labour force due to population growth. Where that figure is below zero, it means that employment growth is not fast enough to keep pace with the addition to the labour force as a result of population growth. The circled area in the chart below highlights that over the last forty (40) months, employment growth has in fact been lower than what population growth has added to the labour force. Although the level is not as severe as during the recessions of the early 80’s and 90’s, it has been over a more prolonged period of time.
This has resulted in a combination of a higher total number of people unemployed (current unemployment rate is higher than during the GFC) and a reduction in the participation rate (the ‘remaining’ people are either counted as unemployed or having left the labour force). In May, total employment growth was less than the population growth by 116 persons – a small amount. Total unemployed persons declined by -2.19k persons, but -2.31k persons also left the labour force. The difference between these two numbers is the 116 persons. Total employment growth needs to be higher in order to generate a simultaneous decline in total unemployed persons AND increase in the labour force participation rate.
As a result, the labour force participation rate (LFPR) has started to decline again over the last two months:-
Since Dec 2010, the LFPR has declined from 65.6% to 64.6%. Not all people leaving the labour force are discouraged workers and there has been some recent ageing population effect on the labour force participation rate. See a recent analysis on the decomposition of the changes in the labour force participation rate.
Since late 2013, as employment growth improved, there was also an improvement in the number of people unemployed. The growth in total unemployed females has been slowing since Jan 2014 and is now almost into decline (positive). On the other hand, the total number of unemployed males has been declining since late 2013 (also positive). Unfortunately, that trend appears to have reversed for total unemployed males over the last two months (see below). Whilst still declining, that rate of decline has become smaller over the last two (2) months – this is a subtle shift.
The slowing growth in total employed persons is also showing up in aggregate hours worked. After seven (7) months of slowing growth, total aggregate hours worked (FT plus PT) declined again in May 2014. This was driven predominantly by a decline in FT hours. The anomaly still seems to be that while the total number of FT employed persons has grown by +13k in May (v Apr 2014) and +41k annually (May 14 v.13), aggregate FT hours worked in May (v April 2014) declined by -0.15% and declined annually by -0.86% (May 14 v 13).
Of most concern is the simultaneous slow down in the growth of both FT and PT aggregate hours worked. Usually, growth in FT and PT hours tends to move in opposite directions especially during periods of ‘softer’ demand. Employers tend to reduce hours from FT to PT, or shift to PT employment growth until conditions strengthen. This occurred throughout most of 2013 and during other periods of slower demand over the last 40 years. The current situation sees both measures slowing and in fact, FT hours declining month on month and versus the same month a year ago.
Most measures of the labour market performance suggest that the positive momentum is slowing. Many of these trends are in the early stages – slowing growth in employment, hours worked, lower participation, and, to a slightly lesser degree so far, slowing unemployment decline over the last couple of months. Whilst the current rate of employment growth is better than a year ago, higher growth in employment is still required to achieve a reduction in unemployed persons AND an increase in the labour force participation rate in order to reduce the slack in the labour market. In all, this turn of events is not a positive sign about what is potentially happening in the economy.